2016 (4) TMI 999 - AT - Income Tax

Net profit determination - Held that - We find that in Assessment Year 2008-09 also, the Assessing Officer applied net profit rate of 7% as against 8% in the present year and when the assessee carried the matter before the Ld. CIT(A), Ld. CIT(A) held that net profit rate of 4% should be applied subject to allowing of deduction for interest and salary paid to the partners. In this manner, Ld. CIT(A) reduced the assessed income to ₹ 16,01,949/- as against income computed by the Assessing Officer at ₹ 43,31,680/- in that year. Hence, we are of the considered opinion that regarding applicability of net profit rate of 4%, the issue is covered by the Tribunal s order in assessee own case. Therefore, respectfully following the same, we hold that in the present year also, net profit of the assessee should be assessed at 4% of gross receipt as has been held by the Ld. CIT(A) because we do not find any reason to take a contrary view in the present year. In the present case, we find that initially the Assessing Officer issued notice u/s 142(1) of the Act but the same was not complied with and thereafter, the Assessing Officer issued notice u/s 142(1) again for which part compliance was made by the assessee by appearing before the Assessing Officer along with the copy of cash book and audit report of the assessee firm but the assessee firm did not comply fully to the questionnaire annexed to the notice u/s 142(1) of the Act. The assessee has not produced the copy of such questionnaire attached by the Assessing Officer along with notice issued u/s 142(1) and the letter submitted by the assessee before the Assessing Officer in compliance thereof. Hence, in the present case, it cannot be said that there is some non cooperation of the assessee making a difficult to determine the correct income but in the present case, there is substantial non compliance if not full non compliance by the assessee and therefore, in the facts of present case, this Tribunal s order cited by Ld. AR of the assessee is not applicable. There is no other argument of the Ld. AR of the assessee as to why and how deduction should be allowed to the assessee in respect of interest and remuneration to the partners. Hence, on this issue, we find no reason to interfere in the order of Ld. CIT(A).

Summary

Issues:
1. Assessment of net profit rate at 4% by the CIT(A) compared to 8% applied by the AO.
2. Separate addition of interest on FDRs and truck income to the total income of the assessee.
3. Disallowance of interest and remuneration to partners without notice of enhancement to the assessee.
4. Allowance of depreciation separately.
5. Compliance with Section 184(5) regarding deduction on account of interest and remuneration to partners.

Issue 1: Assessment of Net Profit Rate
The appeal involved cross appeals by the Revenue and the assessee against the order of the Ld. CIT(A) for the Assessment Year 2010-11. The assessee contended that the CIT(A) erred in upholding the AO's decision to reject the books of accounts and frame the order under section 144 of the Income Tax Act, 1961. The Revenue argued that the CIT(A) wrongly estimated the net profit at 4% instead of the 8% applied by the AO, based on the past history of the assessee's case. The Tribunal found that the issue of net profit rate was previously addressed in the assessee's case for the Assessment Year 2008-09, where the net profit rate was reduced to 4% by the CIT(A). Consequently, the Tribunal upheld the CIT(A)'s decision to assess the net profit at 4% of the gross receipts.

Issue 2: Separate Addition of Interest and Truck Income
The Tribunal addressed the contention of the assessee that the net profit rate of 4% should include interest income and truck hire charges. However, the Tribunal found that in the previous assessment year, the interest income was not separately added by the AO, despite applying a net profit rate of 7%. The Tribunal concluded that the net profit rate should not include interest income or truck plying income. Therefore, the AO was justified in separately adding the income from interest and truck income to the net profit computed at 4%.

Issue 3: Disallowance of Interest and Remuneration to Partners
The Tribunal upheld the CIT(A)'s decision to disallow deduction on account of interest and remuneration to partners based on Section 184(5) of the Act. The Tribunal noted that the assessee's non-compliance with notices issued during the assessment proceedings led to substantial non-compliance. The Tribunal distinguished the case cited by the assessee, emphasizing the importance of full compliance with notices to justify deductions. As a result, the Tribunal found no reason to interfere with the CIT(A)'s order on this issue.

Issue 4: Allowance of Depreciation
The Tribunal did not specifically address the allowance of depreciation separately as raised in the grounds of appeal.

Issue 5: Compliance with Section 184(5)
The Tribunal analyzed the compliance with Section 184(5) regarding the deduction on account of interest and remuneration to partners. The Tribunal found that substantial non-compliance by the assessee with the notices issued during the assessment proceedings justified the disallowance of deductions. The Tribunal concluded that the Tribunal's order cited by the assessee was not applicable in the present case due to the lack of full compliance. Therefore, the Tribunal upheld the CIT(A)'s decision on this issue.

In conclusion, the appeals of both the Revenue and the assessee were dismissed by the Tribunal, affirming the CIT(A)'s order for the Assessment Year 2010-11.